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Text 3-11: A manufacturer contemplates raising $20 x 106 to construct a manufacturing plant by issuing industrial revenue bonds free of federal, state, and local
Text 3-11: A manufacturer contemplates raising $20 x 106 to construct a manufacturing plant by issuing
industrial revenue bonds free of federal, state, and local taxes that mature in 8 years and pay 8%/yr
interest. At maturity, the principal of the bonds must be repaid to the bond holders. Profit from the
sale of products manufactured in the plant will not begin until the start of the second year, and profits
will increase by 10%/yr thereafter from $3 X 106 at the end of the second year. Determine the
numerical value of the manufacturer's rate of return on this investment over the 8-year period.
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